Miller Industries
(NYSE: MLR)
Sell
200 shares @
the Market
Analysts:
Tongsu (Serena) Peng
David Lee
Presented on November 10, 2016, Updated December 1, 2016
Sector: Consumer Goods
Sub-Sector: Auto Parts
As per November 9, 2016:
Current Price: $23.10
P/E: 15.4x
Market Cap: $262.1 millions
Valuation:
Discounted Cash Flows
(DCF): $ 23.79
Comparable Analysis
(Comps): $ 25.00
RCMP-Fall-2016
University of Illinois
At Urbana-Champaign
Business Summary
Miller Industries Inc. (NYSE:MLR) was founded in 1994 and is based in Ooltewah, Tennessee with operations in Tennessee and Pennsylvania, and manufacturing in France and the UK. Miller Industries is the world’s largest manufacturer of Towing and Recovery Equipment and sells products globally through independent distributors in the US, Canada, Mexico, Europe, Pacific Rim, Middle East, South America, and Africa. Its main line of business includes the manufacture and sales of wreckers, car carriers, and vehicle transport trailers, including trailer transport services.
Key External Drivers
Due to the cyclical nature of Miller’s business, they are highly sensitive to economic conditions and consumer confidence. Furthermore, as a manufacturing business, they are subject to volatility in raw material, such as aluminum, steel, and crude oil. On the demand side, their performance is closely tied to the number of vehicles registered and average age of vehicle fleet.
Financial Analysis
In our financial analysis, we see steady increase in firm profitability with expected increases in ROE and ROIC. The uncharacteristic profit margins and returns observed in 2011 are attributable to government contract purchase orders from the US, which are not expected to continue. Negotiations with the French military remain ongoing, but reoccurrence of events from 2011 are unlikely.
In our projections, we see an increase in efficiency within working capital accounts. Liquidity is expected to continue to increase with cash conversion cycles decreasing its turnover days. Capital projects within the firm cause a significant decrease in firm solvency, but the Company’s strong balance sheet maintains high interest coverage ratios. With the firm expected to take on upwards of $50m in debt, the firm looks to increase asset efficiency and profitability margins to drive annualized returns in an upward trend year-over-year to 2020.
Projection and Valuation
We project the revenue growth rate will be decreasing over the next five years as the demand in domestic market tumbles. The current discount rate estimated is about 10.1% and is projected to increase as the company starts to take on long-term obligation again to cover its capital projects. Recently the price is boosted due to its earnings release and positive political changes. The DCF valuation is $23.79, which align with the current market price, demonstrating that the company is fairly valued. We own 400 shares, purchased @ $20.59 on May 5, 2016.
Recommendation
Upon analysis of Miller Industries, the Company is overvalued and we propose a SELL recommendation for 200 shares of MLR at the Market.